Not out of the woods

China has announced it is back on track to double-digit growth; the US and other countries are well into recovery.

In the UK, we’re officially out of recession with a barely positive, just 0.1 per cent, increase in GDP. Yet here, nobody feels like partying. The improved figures from elsewhere should give us a fillip: they indicate a world economy that is on its way back. But in the UK, the champagne is being kept firmly on ice a while longer.

Our problem is that, unlike other nations, the UK has a great cloud of uncertainty hanging over it this year. It’s a general election year and in the months leading up to the ballot and for several months afterwards, much new business, including private and public sector commitments to spending, will remain firmly on hold.

So it’s just our luck that while the rest of the world powers ahead and moves further away from the international financial crisis, we’re stuck, fearful of a possible ‘double-dip’, unsure of our future fiscal and regulatory environment.

Economically, however, we are not down and out - recent comparisons to Greece, Latvia, Ireland or Spain are absurd. The UK remains one of the world’s largest economies - those nations simply are not in our league, in terms of underlying strength and ability to export.

Alarming job losses

But unemployment remains a major worry, both socially and financially.

Failure to bring the jobless total down could blow a large hole in the best-laid intentions to reduce the public finance deficit. Recently, the figure has dropped slightly, but only slightly.

What’s provoking alarm is where those job losses have come from. Yes, jobs have gone in the City as the banks ran into the sand, but it’s the thousands of jobs that have perished outside financial services that cause most concern.

How are public sector posts going to be replaced when, whichever party gets in, it is going to preside over public expenditure cuts? Government departments, town halls and NGOs are unlikely to be in a position to hire. Quite the reverse: the reductions that have occurred to date may be nothing compared to those that may happen. At the moment, the main political parties are keeping silent on the detail.

They want to be seen to be macho, to be prepared to wield the axe - they are just not willing to say where it will fall. That situation is likely to remain in place until the election is over.

Then, whoever wins - and the polls suggest it will be the Conservatives - will want to get rid of their bad news in the first year or two. During that period they can blame the previous administration and the bad tidings are far enough away from the next election to matter. By the third year, they want to appear upbeat - telling voters they’ve taken painful decisions but they’ve worked and now the country is back on track and their party is deserving of the public’s trust.

All housing professionals’ eyes should be on George Osborne’s first, snap budget. Buoyed by victory, it’s the moment he can really flex his muscles, the point when we start to see the real Osborne - and not the one who said the things he did in order to secure the popular vote.

But even if it’s Labour that wins, don’t expect any generosity. If they do defy the polls it’s because they will have managed to convince the electorate they should manage the public finances and not the Tories. That will have entailed, in the election fight, plenty of talk about how serious they are about reducing the deficit.

There is, of course, the possibility of a hung parliament - something being viewed as increasingly likely in the City, given the public’s uncertainty about David Cameron and the prospect of a fight-back from Gordon Brown.

Again, it will be cuts, not new spending, that is on the agenda even if neither party has a working overall majority.

So, new jobs are unlikely to come in the public sector. What of the private? Small businesses and start-ups will gain momentum. However, they are not large-scale employers.

Sneaky downsizing

One of the more nagging aspects of this recession is the thought that major companies have scaled back - not merely to reflect falling orders but also in response to structural changes within their own industries. They’ve been able to use the downturn as a mask, to hide job cuts that were the result of cheaper labour being available overseas and technological advances, rather than business declining.

One indication that this was the case was the way some large employers announced substantial redundancies when the slump had barely begun - the suspicion has to be that this was downsizing they’d been waiting to implement for a while but were scared to do so. Those jobs will be hard to replace in the short-term. Just because the recession is formally over does not mean a new factory can be erected in days - the closed plants will remain closed, with no sign of new ones on the horizon.

Against this background it should not come as a surprise to hear Sir Martin Sorrell of WPP, the advertising group, declare, ‘flat is the new up’.
Similarly, Justin King, chief executive of Sainsbury’s reported like-for-like sales were up 4.2 per cent but then underscored the feeling of many in the City when he accompanied the announcement with a warning that this year, ‘there’ll be a new government and whatever the political complexion of that, they will have to face raising taxes and reducing spend’.

He added: ‘I think the reality of what faces consumers will be very tough.’

That, unfortunately, is what lies ahead. We may even lurch back into recession. While other nations savour their recoveries, we must go into a general election, after which the victor must deal with the legacy of a period when the public finances went hay-wire. Other countries can begin to celebrate. But not Britain. Not yet.

Chris Blackhurst is City editor of the London Evening Standard